A Tightly Knit Controversy
WILLIAM WALLACE almost certainly never saw a banana, let alone ate one. But the Scottish patriot did know a thing or two about his country’s knitwear. And he would have recognized that an attack on a local industry was an attack on Scotland.
So how would he have responded to the current threat to the cashmere sweater business? His reaction would have sent a shiver down the spines of U.S. trade negotiators.
It is one of the bizarre features of the global economy-and almost proof of the chaos theory-that a minor dispute in one part of the world can trigger major devastation in another. So it appears that the cashmere knitting industry in the Lowlands of Scotland might be about to slip on a Florida banana peel.
The reason is the dispute between the United States and the European Union over free trade and protectionism. The Americans believe the EU is unfairly favoring banana growers in the Caribbean, to the detriment of U.S.-owned producers in Latin America. To make its point, the U.S. is threatening to ban imports of certain products, including prized luxury knitwear.
Arthur Bell, managing director of specialty mail order company Scotland Direct, notes that “cashmere is a genuinely global business.” The wool comes from Outer Mongolia, the main spinning center is in Kinross (near Perth) in Scotland, the sweaters are woven in the Lowlands of Scotland, and then they’re exported around the world.
And this is where direct marketing comes in. Cashmere is a high-ticket item that appears in many mail order catalogs. For upscale London retailer Harrods, for example, it is perfectly in line with its brand. Harrods’ mail order business to American consumers has been growing, both through direct mail and via its Web site.
A potential trade war would mean that orders placed in the United States for cashmere products would either have to be refused, or run the risk of being impounded by U.S. Customs. That, in turn, would have a long-term negative effect on customer service, loyalty and repeat purchases.
The impact on the cashmere producers themselves is likely to be even more severe. “It will have a very bad effect on an area already devastated by the collapse of agriculture and the strong pound,” says Bell. “It is driving a nail into the coffin of small mills all over Scotland.” Most of the production is carried out in very small companies, which often are the only sources of employment in these small towns.
Putting pressure on vulnerable parts of the economy is clearly part of the American negotiators’ strategy. The EU may want to protect its domestic industry more than it wants to foster agriculture in the Caribbean. But Bell believes the strategy could backfire and end up harming American companies, primarily direct marketers.
“Look at all those U.S. mail order companies moving into Europe,” he says. “What happens to Lands’ End, for example? It is buying cashmere sweaters in Scotland to sell back to the U.K. and Europe. The trade war is going to kill many of their suppliers. So the negotiators are soiling their own nest.”
Discussions are taking place at the highest levels about the dispute, which may even be subject to a legal challenge under international trade law. If the argument drags on as a result, this would at least prevent sanctions from being implemented for some time.
For the Scottish cashmere mills, however, that would simply prolong the uncertainty.
If direct marketers involved in the global cashmere trade recognize the potential impact on their business, it might lead to some useful lobbying. Bell offers some suggestions to high-profile customers who could be brought on board to give any campaign a celebrity boost.
“Where are golfers like Tom Watson or Tiger Woods going to get their wonderful golfing jumpers from if this happens?” he asks. “They are all proudly wearing cashmere sweaters from companies like Pringle’s.”
Finding common ground between Tiger Woods and William Wallace might seem like a stretch, but when it comes to the global economy, anything can happen.
